Suppose the Japanese government pegs the yen to the U.S. dollar. What could the Japanese central bank do to preventdepreciation of the yen against the dollar in the foreign exchange market?It would lower interest rates to discourage exports to the United States.It would increase its official reserve holdings by buying dollars in the foreign exchange market.It would print new yen currency notes and exchange them for Japanese government bonds in an open market operation.It would buy yen and sell dollars in the foreign exchange market.

Foreign exchange market is an institution for exchange of different currencies.

Suppose the Japanese government pegs the yen to the U.S. dollar. What could the Japanese central bank do to prevent depreciation of the yen against the dollar in the foreign exchange market? O It would lower interest rates to discourage exports to the United States. O It would increase its official reserve holdings by buying dollars in the foreign exchange market. O It would print new yen currency notes and exchange them for Japanese government bonds in an open market operation. O It would buy yen and sell dollars in the foreign exchange market.

Suppose the Japanese government pegs the yen to the U.S. dollar. What could the Japanese central bank do to prevent depreciation of the yen against the dollar in the foreign exchange market? O It would lower interest rates to discourage exports to the United States. O It would increase its official reserve holdings by buying dollars in the foreign exchange market. O It would print new yen currency notes and exchange them for Japanese government bonds in an open market operation. O It would buy yen and sell dollars in the foreign exchange market.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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From the U.S. standpoint, a capital outflow will occur when a Japanese investor buys a portion of the U.S. government debt. True False
Assume that the current exchange rate for Japanese Yen and U.S. Dollar is 140 JPY per USD. Considering Interest Rate Parity (IRP), if interest rates are higher in the United States than in Japan, what should we expect what for the forward exchange rate? IRP does not apply to this situation. O We should expect no change in the forward exchange rate. We would expect the forward exchange rate to move above 140 JPY per USD. We would expect the forward exchange rate to move below 140 JPY per USD.
c) In what three ways do commercial banks make a profit from the monetary system? (d) In Canada, what is the equivalent of the U.S. Federal Reserve? e) Suppose that the United States were to adopt a system of full-reserve banking; thatis, demand deposits would be illegal to lend out, and banks would only charge a nominalfee for safekeeping. Would this help to fix the problems that Mike Maloney layed out? Explain your answer.
Consider a U.S. firm that deals in only one foreign currency, the peso. Fill in the blanks to describe the economic exposure of the firm to changes in the value of the peso. If the peso depreciates, interest from investments in Mexico will likely investments will If the peso depreciates, the in borrowed funds from Mexico increases However, if the peso appreciates, interest from those decreases on borrowed funds from Mexico However, if the peso appreciates, the interest owed on
1.Assume that the yen is selling at a forward discount in the forward-exchange market. Then, most likely a . interest rates are declining in Japan. b . this currency is gaining strength in relation to the dollar. c . interest rates are higher in Japan than in the United States. d . this currency has low exchangerate risk.
What is likely to happen to an MNC in UK if the British pound appreciates: exports denominated in British Pound will probably increase. exports denominated in foreign currencies will probably increase. O All of these statements are correct. O U.S. sales will probably decrease. interest owed on foreign funds borrowed will probably increase.
An Australian mining company exports iron ore to other countries, such as China, South Korea and Japan. Its annual report states that the company is exposed to the risk of falling oil prices, increasing interest rates and exchange rates fluctuations of various foreign currencies. Discuss derivative products that can be used to hedge these risks?
Which of the following are reasons why an MNC might issue bonds in a particular foreign market? Check all that apply. There is stronger demand for bonds issued by the MNC in a foreign market as opposed to the domestic market. The currency in that foreign market is expected to appreciate against the MNC's home currency. There is a lower interest rate in that foreign country. The MNC intends to finance a project in a specific country and in a specific currency. If there is for a bond, a bondholder may not be able to sell a bond at the desired time or may have to decrease the price of their bonds in order to sell them. The risk of this occurrence is known as risk.
Which of the following statements are true about exchange rate risk? Check all that apply: A Canadian investor with an investment in U.S Treasury bills faces exchange rate risk. Exchange rate risk arises from the uncertainty in asset returns due to changes in the exchange rate between the currency of the investor and the foreign currency. Exchange rate risk can't be perfectly hedged, even if the return earned in the foreign currency is known beforehand. Exchange rate risk can be hedged using a futures or forward contract in foreign exchange. Submit
A US manufacturing firm that produces cars in Mexico to sell in the US and the Eurozone would like to reduce the effect of currency fluctuations on its profits. Describe in words the hedging strategy that the company should take. Remember that a possible answer is that the company should not be hedging at all.
For an investor who starts with dollars and wants to end up with dollars, which of the following choices is an example of speculating in the FX market? Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy the foreign currency. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and sign a forward exchange contract to buy dollars. Sell dollars at the spot rate, invest the proceeds in foreign currency-denominated financial instruments, and then buy dollars at the future spot rate. Buy a dollar-denominated financial asset.
Why do governments intervene in the foreign exchange market? Check all that apply: To maintain exchange rate boundaries To reduce fear in financial markets To smooth out the business cycle To smooth out exchange rate movements To earn a profit for the government

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